Social and Environmental AccountingPertemuan 07

Matakuliah : F0122 – Seminar AkuntansiTahun : 2009

Social and Environmental Accounting

Accounting SeminarWeek 6

Gatot Soepriyanto

Understanding Social Accounting

• Social Purpose – Social Accounting – Social Audit – Social Report

• Social = social + environmental + economic• Financial performance = organisational

sustainability• Social Accounting (social accountant) –

Understanding Social Accounting

• Proving and Improving – and Accountability• Performance (what we did) + Impact (what

happened)

Principles of Social Accounting1. Multi-perspective2. Comprehensive3. Comparative4. Regular5. Verified 6. Disclosed

Getting Ready for Social Accounting

• Understanding the process• Looking at what you already do• Get commitment• Think about available resources• Make it manageable!• Actively decide to go ahead

The Building Blocks of Social Accounting and Audit

• Step One – Planning

– Mission– Objectives (how we seek to achieve it) + Activities

(what we do) + Values (what we believe - how we behave)

– Stakeholders – whom we affect and who affect us (intentionally and unintentionally)

The Building Blocks of Social Accounting

• Step Two - Accounting

– Scope– Indicators (narrative, quantitative and qualitative

information)– Stakeholder consultation

The Building Blocks of Social Accounting

• Step Three – Reporting and Audit

– Draft social accounts– Social Audit Panel and social audit statement– Social Report

Three Step Process

a

GETTING READY…Understanding processWhat organisation already doesCommitmentManaging the processResourcesMaking the decision

STEP 1: SEE PLANNINGMissionValuesObjectivesActivitiesStakeholders Key stakeholders

STEP 2: SEE ACCOUNTINGDeciding the scopeAgreeing indicatorsCollecting dataEnv./economic impact Social account planImplementing plan

STEP 3: SEE REPORTING & AUDITDrafting Social AccountsSocial Audit PanelProcess for the PanelSocial Audit StatementUsing the Social AccountsDisclosure

Assessment Assessment Assessment

Buy-in Mission etcStakeholders

Consultation - data results

Social Audit Report

Website: Updateable information

Open College Network

CD:Case Study - GFCIntroductory OHP/PPCase studiesChecklist for Intro'nDiagram of processInformation SheetWhat you already doSA on One Page!Cycle diagram3 Step Process

CD:Case Study - GFCOHP/PPExamples - techniquesExamples of MVOAExamples – S/H mapsLists of MVOAExamples of outputsTemplates

CD:Case study - GFCOHP/PPExamples - SBKSExamples:QuestionnairesInterviewsFocus groupsPA techniquesAlternative methods Planning toolsTemplates

CD:Case study - GFCOHP/PPExamples of using SAExamples - Chair notesPanel criteria/ChecklistsExample of timetableTemplates

Video

Using Social Accounting and Audit

• Proving – demonstrating what we have done and achieved (performance and impact) to all stakeholders (accountability)

• Our Objectives and Their Objectives – the 360 degree picture

• Common or Shared Objectives – making comparisons

• Improving – social enterprise plans

Some Contemporary Issues• Mandatory or Voluntary?• A kite-mark for social economy organisations? –

the ethical dimension• The cost of social accounting and audit

Environmental Accounting

Discussion• Environmental Accounting Overview

– What is environmental accounting

– Why do environmental accounting

– What is an environmental cost

• System Strategies– Reactive, Proactive, Leadership

• Business Purpose and Application– Example - Cost Allocation

• Methodologies

Environmental Accounting Overview

What is environmental accounting?

– A flexible tool to provide information not necessarily

provided in traditional managerial systems.

Goal

• Goal of environmental accounting is to increase the amount of relevant data for those who need or can use it.

• “Relevant data ” depends on the scale and scope of coverage

Scale and Scope • Applicable at different scales of use and scopes

(types) of coverage.– Application at an individual process level (production

line), a system, a product, a facility, or an entire company level.

– Coverage (focus) may include specific costs, avoidable costs, future costs and/or social external costs

Scale and Scope• Decisions on scale and scope of application

significantly impact ability to assess and measure environmental costs– Process vs Facility– Discreet costs vs Hidden vs Contingent vs Image Costs

Why do Environmental Accounting ?

• Environmental cost can be significantly reduced or eliminated as a result of business decisions.

• Environmental costs may provide no added value to a process, system or product (i.e. waste raw material )

• Environmental costs may be obscured in general overhead accounts and overlooked during the decision making process.

Why do Environmental Accounting ?

• Understanding environmental costs can lead to more accurate costing and pricing of products.

• Competitive advantage with customers is possible where processes and products can be shown as environmentally preferable.

Environmental Costs• Major challenge in application of environmental

accounting as a management tool is identifying relevant costs.

• Cost definition determined by intended use of data (i.e. cost allocation, budgeting, product/process design or other management decision support).

Environmental Costs• Types of Environmental Costs

– Conventional: material, supplies, structure and capital costs need to be examined for environmental impact on decisions.

– Potentially Hidden: • Regulatory (fees, licenses, reporting, training, remediation)

• Upfront and back end (site prep, engineering, installation, closure and disposal)

• Voluntary (training, audits, monitoring and reporting)

– Contingent: penalties/fines, property liability, legal)

– Image: Relationship with employees, customers, suppliers, regulators and shareholders

Overview Summary

• Flexible tool to provide relevant data not ordinarily captured in traditional systems.

• Successful application requires up-front understanding of scale and scope of application.

• Once identified, information needs to be communicated/distributed to decision makers and considered as a component of management’s decision making criteria

System Strategies• Environmental Accounting systems typically fall

into one of three categories:– Reactive– Proactive– Leadership

Reactive Systems

• Typically spread costs (capital and expense) across various overhead categories.

• Environmental costs typically not assigned to specific line/process or activity.

• Reactive system fails to provide indication or quantification of environmental costs.

• As a result it fails to identify cost drivers and minimizes opportunity to develop tactics to reduce these costs.

Proactive systems

• Costs are categorized and assigned to specific process and activities.

• Costs incurred can be identified, classified and quantified but are limited to discreet costs.

• Decisions typically focus on incremental activities ( i.e. minimize waste, etc.).

Leadership Systems• Includes both financial and non-financial issues

in the relevant data used in the business decision process.

• Systems are designed to include value chain perspectives.

• Both the process as well as the product are evaluated for relationship between inputs and overall value provided to minimize “total costs”.

Application• Utilization of data generated from application of

environmental accounting tool can be used for a variety of decision classes including:– Cost allocation– Capital budgeting– Product design

Cost Allocationan example

• Goal - Bring environmental costs to attention of corporate stakeholders.

• Four steps in environmental cost allocation:– Determine scale and scope of the application– Identify environmental costs– Quantify those costs– Allocate those costs to responsible product, process or

system

Traditional Cost System

OtherOverhead

Toxic WasteProduct B

Product A

Allocated Overhead

Product B

Modified Allocation System

OtherOverhead

Toxic WasteProduct B

Product A

Allocated Overhead

Product B

MethodologiesRelated Accounting Topics

• Application of Environmental Accounting typically used in conjunction with:– Activity Based Costing (ABC)– Total Quality Management (TQM)– Business Process Re-engineering – Balanced Score Card

References• www.socialauditnetwork.org.uk • www.proveandimprove.org

Assignments• Summarize, Discuss and Present the

following paper (see additional material):– Determinants of Corporate Social

Responsibility Disclosure: An Application Of Stakeholder Theory (Roberts, 1992)